“We cut back on eating out and we didn’t go on extra trips anymore,” says Cover. “Just being mindful of how we spend our money has saved us up to $1,000 a month.”
Though painful, such saving can uncover buckets of money you didn’t even know you had. Financial author David Bach calls it the “latte factor.” A few bucks a day, like the cost of a daily latte, might not seem like much, but put aside and compounded over decades, it can actually represent many thousands of dollars. “Don’t underestimate the little things and how they can add up,” says Bridgforth, author of Girl, Get Your Credit Straight! (Broadway; $19.95). “You have to know where your money goes before you can make any real plans to change.”
To rein in spending, follow these tips from the experts: For a month, write down every last penny you fork over, so you can figure out where the leak is. Then cut out those items you want, as opposed to truly need. Also, pay cash for almost everything, because using credit cards is so painless that it’s easy to rack up huge bills.
2. Slash Fees
When you’re investing $5,000 or $10,000 in a mutual fund, generally the last thing you’re thinking about is the “expense ratio.” That’s the seemingly innocuous fee that the fund culls off the top for its services. But don’t just breeze over that small stat, because it’s actually a terrific predictor of your fund’s future performance.
After all, that small charge is taken out of your eventual returns. “In investing, there are only a few knowns, and fees are one of them,” says Del Stafford, a principal with mutual-fund giant The Vanguard Group. “Clearly, the lower the fees you’re able to obtain, the more returns you’re able to generate.”
3. Start Yesterday
Clark is hardly an old-timer by anyone’s calculations. But he’s already kicking himself about what could have been. “If I knew at 21 what I know now,” he says. “My wife and I look at each other and say, if we had started saving back then, we could have been multimillionaires by now.”
That’s because of the power of compound interest. Here’s a chilling example from Vanguard: If Dawn starts at 25 and chips in $2,000 a year until age 35—then stops forever—she’ll end up with almost $315,000 by age 65, assuming a return of 8% a year after expenses. But if Dave starts at 35 and contributes the same $2,000 a year, all the way to retirement, he ends up with less than $245,000—even though he’s actually put in far more.
Hardly fair, maybe, but that’s how important a head start is. “Start early, please,” urges Clark. “Just trust me.”
4. Diversify, Diversify, Diversify
Unless you can somehow divine the future, you should probably hedge your bets and spread your wealth among numerous asset classes. That way, if one area tanks—the stock market, bonds, or real estate—you won’t be wiped out, and the other sectors will mitigate your losses.
It’s called diversification, and for most